Will the Web wilt Wal-Mart?
By Julie Landry
Redherring.com
September 25, 1999
For Wal-Mart (NYSE: WMT), the Web will either be
key to its continued dominance or the reason for its
demise.
The giant retail chain currently is
developing an enhanced
electronic-commerce site, expected
to launch by this Christmas. But
skeptics abound, wondering if
Wal-Mart will still prove a success
story in the next century.
"They have formidable technology,
and they typically execute well and
swiftly," says Michael May, an e-commerce analyst at
Jupiter Communications. "But underestimating the time it
takes to build competence online is a mistake."
Already, Wal-Mart's path to the
Web appears cluttered with smaller
e-commerce startups. They could,
however, be easily squelched by the
giant, judging by all the now-closed
mom-and-pop operations whose
stores happened to stand in
Wal-Mart's way.
STEAMROLLER, BABY
Wal-Mart is a retail legend. It's the
story of young Sam Walton, who
turned his five-and-ten store in Rogers, Arkansas, into a
behemoth discount chain, now known the world over and
often emulated. Wal-Mart's 2,400-plus stores ring up
more than $100 billion in sales every year.
With that kind of presence, Wal-Mart is the
"9,000-pound gorilla," says Transformix Computer
Corporation president Charles Finley Jr., who has
written about the big retailer's use of technology.
But gorillas aren't the most graceful creatures, and
agility is a vital tool for any brick-and-mortar company
forging its way online.
Like Toys "R" Us (NYSE: TOY), Wal-Mart realizes that
without an e-commerce channel, online retailers will
grab its current customers once they get wired. Jupiter
estimates that about 90 percent of online sales by 2002
will be products that customers would have otherwise
bought offline. Since the vast majority of online sales will
come at the expense of offline sales, Wal-Mart needs to
hang out an online shingle or else "the growth of online
shopping will come at expense of their revenue base,"
says Mr. May.
GIVE 'EM WHAT THEY WANT
With a solid brand and distributor relationships that make
e-commerce startups green with envy, Wal-Mart is a
worthy competitor even to nouveau giants like
Amazon.com (Nasdaq: AMZN). In October 1998,
Wal-Mart even went so far as to sue Amazon.com,
Drugstore.com (Nasdaq: DSCM), and Kleiner Perkins
Caufield & Byers (an investor in both Amazon.com and
Drugstore.com) for recruiting former Wal-Mart
employees in order to allegedly steal trade secrets. The
suit was settled in April.
The "trade secrets" at stake were Wal-Mart's information
systems, revered in the retail industry for pioneering
customer-data mining. The Bentonville, Arkansas-based
retailer was named one of Fortune's top 10 most admired
companies in March for its operational expertise. "I think
Wal-Mart's responsible for completely changing retailing
and also for increasing awareness of the value of
information," says Mr. Finley. "It's a question of
knowing what people buy, where, when, and how, and
then using those resources."
By tracking purchases and inventory through its
enterprise-wide systems, Wal-Mart is able to stock just
the most popular items in volume and then pass those cost
savings along to its customers. With price, convenience,
and broad selection that easily defeat any corner store,
the company's offline success has thrived in rural and
suburban areas.
DEPTH VS. BREADTH
Amazon.com is often referred to as the "Wal-Mart of the
Web," for its domination of online book sales and the
rapid clip at which it adds new categories. The two are
both retail giants in their respective worlds but that's
where the parallels end, Mr. May says. Wal-Mart has
pursued a breadth strategy -- a wide variety of products
under one giant roof -- but Amazon.com goes deep in
each of the selected categories it pursues. Mr. May says
online customer loyalty is built by category-killers like
Amazon.com who promise every item in a given
category. For Wal-Mart, "that's going to mean changing
their selling propositions," he adds.
The warehouse model was optimal for the physical
world, but with geographic barriers torn down on the
Web, the company will have to take a different tack.
"They won't command the market share online that they
do offline, because there are options for customers on the
Internet that didn't exist before," says Grant Slade, vice
president of marketing at iVendor. Online, most products
are just a few clicks away, instead of a ten-minute drive.
Avoiding that drive looks to be what tomorrow's
customers demand. It's a scenario that's starting to look
more like a problem for Wal-Mart than for consumers. |
